False Claims Act

The Whistleblower Law, also called the False Claims Act, is designed to place some control over fraud committed against the government into the hands of everyday Americans. Such frauds are generally within the realm of healthcare, government and tax contracts which may provide the opportunity for deceit to occur otherwise virtually unnoticed. Citizens who are aware of such deceit are provided with financial reward for their honesty in revelation of the fraud, when they take legal action under the provisions of the False Claims Act and if the action results in affirmation of the citizen’s claims.

History of the False Claims Act

The False Claims Act was initially conceived by President Lincoln’s government and endorsed by him toward its original passage in 1863, to fight against wartime frauds committed against the Union Army by its suppliers. The original law was remarkable in its “qui tam” provision which provided the right for citizens to sue fraudulent individuals or organizations on behalf the government. The reward for the citizens doing so was 50 percent of the funds recovered by the government as a result of the case.

Although the False Claims Act went through some changes in 1943 which reduced its appeal for use by potential whistleblowers, it was reformed to its original intent under President Reagan in 1986. The Reagan administration’s reconsideration of the Act was in response to widespread defense contractor fraud which had become rampant within the law’s 43 years of relative dormancy, during which time whistleblowers felt restricted by the law’s changes, including reduction of the citizen’s potential reward.

By returning the law to its Civil War era glory in 1986, the qui tam mechanisms and additional legal provisions for action by private attorneys again assured whistleblowers that bringing a suit against those committing fraud was both valiant and worthy of reward. In fact, as of the 1986 changes to the law, the whistleblower is often rewarded between 15 and 25 percent of recovered funds. This has resulted in over $14 billion in lawsuits against cheating individuals and organizations with more than $2.2 billion in whistleblower rewards paid to private citizens bringing the suits.

Positive Reaction to the False Claims Act

Beyond the obvious benefit of financial reward to whistleblowers in successful cases, the False Claims Act and its qui tam have encouraged widespread cultural change in corporate America. The Act has shifted workplace decision making from a history of financially rewarding deceit – like that seen during the Civil War – to one of appreciation for the merits of honesty and values-based business practices.

Types of Fraud Targeted By the False Claims Act

The False Claims Act allows citizens to act as whistleblowers and bring a legal suit against those acting illegally during administration of contracts or programs funded by the Government, except in instances of tax fraud. These may include Department of Defense contracts, Medicare or health care fraud, or other types of contracts and actions. The frauds may be as simple as “padding” of invoices to the Government, for including charges not related to the contract, falsification of documents, intentionally providing lower quality service or products than specified within a contract, or other such intentional deception. Some other examples are:

• Contractor falsification of test or quality results for products sold to the Government
• A physician or medical institution bills Medicare or other health program for services not performed or not needed
• A grant recipient bills the Government for unnecessary costs or those not included within the coverage of the gran

Some individual states have enacted their own forms of the False Claims Act due to the obvious success of the program at the federal level. Those states include: California, Delaware, the District of Columbia, Florida, Hawaii, Illinois, Louisiana, Massachusetts, Nevada, New Mexico, Tennessee, Texas, and Virginia.